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Vancouver’s tax influenced a 40% drop in transactions – but it wasn’t just foreigners who accounted for that cooling, according to one research institute

The C.D. Howe Institute is imploring Ontario to avoid implementing its own foreign buyer tax, arguing Vancouver’s was detrimental to that market.

“We observed a clear and significant decrease in volume of transactions for Greater Vancouver vis-à-vis surrounding regions following the implementation of the tax,” C.D. Howe authors Benjamin Dachis, Hamza Mhadi, and Jairo Pinto said in a study. “After controlling for a variety of factors that affect housing prices and demand, our preliminary results suggest that the foreign-buyer tax has led to nearly 40% less transactions than would have occurred without it, accompanied by average prices that are 4.5% lower than otherwise.”

Source: C.D. Howe

The institute shared its findings in a letter Ontario Finance Minister Charles Sousa.

It argued the tax had a greater impact on lower buyers than the intended target: Foreign speculators.

“As foreign buyers were estimated to comprise a mere 7% of total transactions in Metro Vancouver, it is clear the tax interfered more with local buyers,” the authors said. “Many locals in need of moving homes were left in a harder position to sell – from families moving to neighbourhoods with better schools to retirees downsizing. And who bore the economic cost of lower home prices? People who own homes now – not foreign buyers – are seeing the value of their investment fall.”

As Ontario continues to deliberate what housing policies to implement – with action expected to appear in the province’s budget later this month – the institute is imploring the province to avoid targeting foreign buyers.

“The BC government’s intent was to lower prices and stabilize the market, but the drop in prices and number of sales shows that locals looking to move feel the harm of the tax,” the authors said. “The attention now turns to Toronto’s housing market where, as of February 2017, prices increased by nearly 24% compared to the year prior. The government of Ontario should take a close look at the harm of Vancouver’s foreign buyer tax and not follow suit.”